Tuesday, February 21, 2012

World Trade Organization Appeals Panel Ruling and Effect

As most readers know, China appealed the World Trade Organization's (WTO) July 2011 ruling stating that China unfairly protected its domestic manufacturers by limiting the export of nine raw materials including SiC.

On January 30, 2012 the WTO appeals panel ruled that China's export restraints on nine key raw materials were not consistent with its obligations to the organization.

The nine commodities include silicon carbide, bauxite, coking coal, fluorspar, magnesium, manganese, silicon metal, yellow phosphorous, and zinc. Many of the aforementioned commodities are deemed critical to the chemical and metals industries.

According to Karel De Gucht, EU Trade Commissioner, "China now must comply by removing these export restrictions swiftly and furthermore, I expect China to bring its overall export regime - including for rare earths - in line with WTO rules."

However, there is another interesting aspect of the ruling. The appellate body said, " The US, EU, and Mexico had not proved that some export policies, such as export licensing requirements and minimum export prices, broke WTO rules."

Most traders we talk to expect China to completely overhaul their export license policy for SiC. The program of allocating 215,000 metric tons per year for export then auctioning those licenses is expected to be abolished for calendar year 2013. Nevertheless, many traders and processors of SiC also expect a mechanism to be in place by the end of 2012 that will deter a free-fall in prices.

SiC & More expects FOB China prices to drop during Q2 2012 and quite possibly again during Q3. As mentioned in issue #43 of SiC & More, in December 2011 China announced that the export license allocations for 2012 would be the same as for 2011, and that 70% of the 2012 allocations would be made available during the first six months of the year. As a result, 151,200 metric tons of SiC will be available for export during the first half of 2012. If the licenses do not sell as expected during the first half of 2012, the 151,200 m/t could be the only allocations for the entire year meaning that the final 63,800 m/t would not be allocated. Such a possibility seems to have created enough apprehension in the supply chain that it is creating price increase pressure.

Bottom line, don't expect a free-fall in prices as a result of the WTO appeals ruling

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